ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Adverse selection arises when one party to a contractual or economic relationship knows more than the other. For example, a seller of a used car knows more than a buyer, a policyholder knows more than an insurance company, and a borrower knows more than a lender.

Detailed explanation-2: -Adverse selection is when sellers have information that buyers do not have, or vice versa, about some aspect of product quality. It is thus the tendency of those in dangerous jobs or high-risk lifestyles to purchase life or disability insurance where chances are greater they will collect on it.

Detailed explanation-3: -Adverse selection refers to a situation where sellers have more information than buyers have, or vice versa, about some aspect of product quality, although typically the more knowledgeable party is the seller. Adverse selection occurs when asymmetric information is exploited.

Detailed explanation-4: -Adverse selection occurs due to asymmetric information passing between the buyers and sellers of the health insurance. The insurance company is largely unaware of the risk and health background of the consumer, as all plans are guaranteed to be issued due to the ACA.